Room Left in South Korea Trade, for How Long is the Question

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It may be conservative, docile and downright boring compared to other emerging Asian equity markets, but the recent returns offered by South Korean stocks have been anything but boring.

Over the past 90 days, the iShares MSCI South Korea Capped ETF (NYSEArca: EWY), the largest ETF tracking Asia’s fourth-largest economy, is up 16.6% or more than double the iShares China Large-Cap ETF (NYSEArca: FXI) over the same period. [ETF Chart of the Day: Emerging Markets]

Earlier this month, Street One Financial noted EWY pulled in $200 million in new assets in just a few days. Earlier this week, Bloomberg reported that foreign investors had been net buyers of South Korean shares for 42 consecutive days. BlackRock, the world’s largest asset manager, said it is overweight South Korea and believes stocks there are “cheap and attractive compared to the region,” Bloomberg reported.

Those factoids might be enough to imply the long South Korea traded is crowded. At least one major bank would beg to differ. Credit Suisse says South Korean stocks are not a crowded trade. Rather, stocks there are just less “underowned,” Brendan Conway reports for Barron’s.

The bank called South Korea “the second cheapest market” by its modeling, and they say it possesses the strongest expected earnings-per-share growth in non-Japan Asia next year, Barron’s reported.

EWY has attracted nearly $900 million in new assets this year, a time in which several large emerging markets ETFs have bled cash. Whether strong inflows to one ETF imply an overheated trade is up for debate, but what is not debatable is the allure of EWY and its holdings.

EWY has come into the spotlight because South Korea has two traits emerging markets investors now prize: A strong currency and a current account surplus. [Investors Rush Into South Korea ETFs]

What may be getting crowded is the number of banks calling South Korean stocks cheap. In addition to Credit Suisse, the list includes Citigroup, Goldman Sachs and J.P. Morgan, among others.